The Short Rise and Long Fall of Heterodox Economics in Germany After the 1970s: Explorations in a Scientific Field of Power and Struggle

Abstract:

In the context of ongoing criticisms of the lack of pluralism in economics, we discuss the development of “heterodox” economics since the 1970s in Germany. Following Imre Lakatos’s concept of scientific research programs (SRP), we examine some classifications of economics, specifying the understanding of diversity in light of the “axiomatic variations” of mainstream economics. This forms the basis for our subsequent description of the development of heterodoxy in Germany, with special reference to the founding of new universities and the reform movements in the 1970s. We show that the heterodox scene flourished in this period, but that this pluralization remained fragmented and short-lived, so that by the 1980s heterodoxy was on its way to becoming marginalized again. The history of heterodoxy in Germany thus presents itself as an unequal “battle of the paradigms,” and can only be told as a story of failure.

Keywords::

• heterodox economics
• philosophy of science
• pluralization
• sociology of science

JEL Classification Codes::

• A14
• B40
• B50
• N01
• Z13

Notes

¹ See especially David Colander (2000), as well as David Colander, Richard Holt, and J. Barkley Rosser (2004).

² See, among others, Olivier Blanchard, Giovanni Del’Arricia, and Paolo Mauro (2010), Ricardo Caballero (2010), James Galbraith (2013), and Joseph Stiglitz (2009a, 2009b, 2011, 2014).

³ Particular prominence was attained by the Queen of England’s question put to her economists in the British Academy of Science (see Besley and Hennessy 2009): Why was there not sufficient warning of the global financial crisis? German Chancellor Angela Merkel expressed similar criticisms during the fifth Lindau conference of Nobel Prize laureates in economics (Merkel 2014).

⁴ The list of studies dealing with this is long, but it includes John Davis (1994), Roger Backhouse (2001), John King (2002a), and Stephen Kellert, Helen Longino, and C. Kenneth Waters (2006).

⁵ The list of relevant appeals is equally long and includes Claude Auroi et al. (2011), Marc Chesney et al. (2011), Ulrich Thielemann et al. (2012), among others. There are also numerous appeals from students, such as the “Petition Autisme Economique” in 2000, “Opening-up of Economics” by the Cambridge 27 in 2001, and the latest “An International Student Call for Pluralism in Economics” by the International Student Initiative for Pluralism in Economics in 2014.

⁶ A new survey in Germany at the beginning of the 2000s showed that 80 percent of the economists surveyed based their views on neoclassical economics, and younger economists were significantly more prevalent than those close to retirement (cf. Frey, Humbert and Schneider 2007). A similar development can also be observed in the US (see, for example, Colander and Klamer 1987; Klamer 2007, 230).

⁷ Private universities, the first of which were established in the mid-1980s, cannot be taken into consideration here. This is both because of the limited access to reliable data and because of the completely marginal influence they have had so far in Germany. We also do not include universities of applied sciences (Fachhochschulen) because they are not authorized to award doctorates and, therefore, cannot contribute to the reproduction of scientific paradigms.

⁸ For the problems involved in translating Lakatos’s concept to economics, see Richard Cross (1982). For an overview of the discussion on the application of philosophy of science concepts to economics, see Stavros Drakopoulos and Anastassios Karayiannis (2005).

⁹ Combining (neo-)Keynesian and neoclassical models in a single paradigm may sound strange to some reade rs, but it will hopefully become plausible when discussed in more detail below. As Paul Davidson (1992, 2005) has shown, placing these in the same paradigm highlights the unsuitability of the use of the term “Keynesian” for neo-Keynesian models (which can thus be seen as fraudulent labeling).

¹⁰ Consequently, both approaches can be found in modern textbooks, with a distinction being made between short term (neo-Keynesian) model and long term (neoclassical) model (see, for example, Abel and Bernanke 2005; Blanchard and Johnson 2013). Especially noteworthy is information economics that also shares the core assumptions and methodology of the mainstream, but it rejects the ideal of stability and optimality as a negative heuristic. This apparently inconsistent finding is not based on the proof of deductive weaknesses in the theoretical derivation of the postulates of stability and optimality, but in the special emphasis placed on the distribution of information to economic subjects (who are no longer permitted to be seen as representative agents). This is raised to the rank of a (divergent) core assumption

¹¹ “Loyalty” to the mainstream is expressed either by one’s refusal to generalize the proof one has provided about the untenability of certain assumptions (mostly the assumption of rationality) (for behavioral economics, see Smith 2003, 505), or by one’s stating that this “proof” is not an alternative to the dominant mainstream, but simply an addition to it (for evolutionary economics, see Arrow 1988, 275ff. and Hermann-Pillath 2002, 21; for complexity economics, see Arthur 2010 and Blume and Durlauf 2001). This may be why Colander, Holt, and Rosser (2004) view these approaches as the “changing face of mainstream economics,” rather than as a paradigm shift. However, there are other voices that are more inclined to rate some of these “dissenters” (particularly the evolutionary and complexity economists) as heterodox (Barkley Rosser 2004; Fontana 2008). This difference in judgement may be due to different conceptions of complexity (Bronk 2011). Those who refer to “epistemological complexity” highlight the fact that no economic agent has the ability to collect and process all the information necessary to act fully rationally (the world is simply too complicated). However, those who refer to “ontological complexity” highlight the fact that not all information (particularly, that about future events) is available because it is part of human action — i.e., the world is complex (to the dimension n) in the sense that it is an open system (with n possible paths of evolution). The former conception appears to be reconcilable with mainstream economics, while the latter is not. Therefore, we have rated evolutionary and complexity economics partly as (dissenters from) mainstream, partly as heterodox.

¹² This primarily means that representatives of these approaches are able to publish their work in the major mainstream journals (which are, in turn, part of the economic and symbolic capital of a paradigm).

¹³ Both Kuhn’s “paradigm” and Lakatos’s “scientific research programs” are terminologically ambiguous. Here we wish to understand the concepts as efforts to explain the economy as a whole, in which all aspects of economics are embedded: theories of the labor market, distribution and growth, and theories of foreign trade, money or finance. From this perspective, however, it seems questionable whether, for example, behavioral economics or the economics of complexity actually constitute independent paradigms, or whether they are just partial theories that may have connections to various paradigms (see Footnote 11 above).

¹⁴ The insight that a real paradigmatic alternative implies the rejection of Walras’s law goes back to Robert Clower (1965). But even before that, “heterodox” economists like Karl Marx or Thomas Robert Malthus were questioning the classical predecessor of Walras’s law and Say’s law (for the relationship between Walras’s law and Say’s law, see Mishan 1963).

¹⁵ We have already pointed out the ambiguous position of evolutionary and complexity economics. Sometimes, feminist and ecological economics are also ranked among the heterodox approaches (Dobusch and Kapeller 2012). However, these research programs are obviously different as they are not necessarily ordered around shared epistemological, methodological, and heuristic dimensions, but rather around a shared subject of inquiry. As much as “international economics” or “labor economics” is neither heterodox nor mainstream, “feminist economics” or “ecological economics” would only be counted as heterodox once heterodox approaches are applied (which is often the case).

¹⁶ One would have to either live in a one-commodity world (such as Ricardo’s corn economy), or make specific assumptions about the capital intensity of the subsistence commodity industry and all of its input producers (neither of which is especially realistic).

¹⁷ Drawing a demarcation line between heterodox and orthodox schools of thought in such a way permits avoiding the counter-intuitive results of having to rate neo-Ricardianism as orthodox, or Austrian economics as heterodox, which would be the case if the methodological requirement of formalism were the distinctive ingredient (as advocated by Lawson 2006), or if heterodoxy were taken as a “collection of different, non-neoclassical schools of thought” (Dobusch and Kapeller 2012, 1036).

¹⁸ Due to a change in the classification system in 1972, the student numbers are not completely comparable over time.

¹⁹ During the wave of founding new institutions, around 70 percent of Assistenten (research assistants and junior researchers) had a chance of gaining a professorship. Once these new institutions were founded, from the mid-1970s on, only 9.0 percent of them have had this chance (Finkenstaedt 2010, 157).

²⁰ One referee of this article was surprised to read so much about the development of economics in the US in a chapter on the development of economics in West Germany. However, the U.S. hegemony in science in general and economics in particular has long been confirmed (Graham and Diamond 1997; Rosser, Holt and Colander 2010), and it certainly cannot be ignored for the evolution of economics in Germany after WWII. The same referee criticized “self-Americanization” as too individualistic a conception and referred to alternative explanations like the Cold War environment (Garnett 2006). Although it cannot be claimed that any evolutionary process is one-dimensional (Backhouse 2005, 384), we must say that it is not the ontological process of forming a “normal science” in economics that we consider here to be the ideological process of the rise of free market economics within that paradigm.

²¹ An American business journalist sums it up neatly: “To be an economist in the United States, you have to believe that the market works most of the time. The situation in which markets don’t work, or cannot be made to work, is really quite exceptional, and not all that interesting to study” (Fourcade 2009, 61).

²² Hesse (2010, 320ff.) refers to a large number of sources that show these feelings of inferiority, thus suggesting that Americanization was part of a semantics of progress.

²³ The German “economics of order” (Ordnungsökonomik), which still resists the axiomatization and formalization of mainstream economics, was quite influential in the early phase of West Germany’s history (see, among others, Ptak 2004, 155ff.).

²⁴ J. Barkley Rosser, Richard Holt, and David Colander (2010, 18) bemoan this US-centeredness as a source of second-class imitation rather than first-class innovation.

²⁵ This is due, in particular, to the position of Alfred Marshall and Arthur Cecil Pigou at one of the world’s most elite universities at the time. Thus, there was already a talk of “orthodoxy” (cf. Keynes 1936, V) or a “citadelle” (Keynes 1934, 488) in the first quarter of the twentieth century.

²⁶ In the US, Lawrence Klein was arguably one of the most important exponents of the combination of econometrics and Keynesian macroeconomics.

²⁷ John Hicks’s well-known IS-LM model can be seen as formalizing Keynesianism and reconciling it with neo-classical orthodoxy. Paul Samuelson eventually became the most prominent and influential representative of this “neoclassical synthesis” — i.e., the harmonization of Keynes and neoclassical theory — in the US. In Germany, this version of Keynesianism was mainly propagated by Erich Schneider, Erich Preiser, Fritz Neumark, and Karl Schiller.

²⁸ The “fightback” against the alleged theoretical falsification, in defense of the embattled neoclassical position, was initially led by Paul Samuelson and Robert Solow, and later by Christopher Bliss and Frank Hahn. Although they had to acknowledge the validity of the criticism put forward by Sraffa, they were so successful in down-playing the significance of this controversy for the rigor of neoclassical equilibrium theory that Sraffa is now not even mentioned in studies on the development of modern macroeconomics — let alone in standard textbooks (Cohen and Hartcourt 2003).

²⁹ In the mid-1970s, around one fifth of all university professors had not completed a Habilitation (the ordinary formal qualification required to become university professor) (see Footnote 33 below; also see Hesse 2007, 124).

³⁰ See Thomas von der Vring (1975, 113, 262) and Birte Gräfing (2012, 72ff.). What occasionally happened, however (at the University of Bielefeld, for example), was that other humanities faculties intervened in the recruitment process for individual chairs in economics, under the slogan of “interdisciplinarity.” This probably led to a different orientation than would have been the case if only economists had been involved.

³¹ For more on this and on the coding of the university types and their likelihood of pluralization, see Arne Heise et al. (2015, 74ff.).

³² The University of Bielefeld and Konstanz University were founded with the explicit objective to create small-size and research-oriented “elite” universities, adopting the ideals of nineteenth-century German university reformer Wilhelm von Humboldt.

³³ On one hand, this is a unique feature of the German-language university system, which is not internationally relevant. On the other hand, alternative recruitment paths via junior professorships and so-called “tenure-track” systems have not yet been able to make any great headway against the path-dependencies of tradition (Bloch and Burkhardt 2011).

³⁴ For a more exact description of the heterodox research programs in Germany, see Heise (2010, 36f.).

³⁵ If at all, these paradigms were represented in social science faculties or departments (e.g., at the University of Frankfurt).

³⁶ Here we cannot offer a truly in-depth Bourdieuian analysis, taking all different forms of capital endowment and the personal biographies (“habitus”) of heterodox and orthodox economists into account — Bourdieu himself was quite aware of the limitations in applying his field theory (Bourdieu 1995, 184).

³⁷ The following statements are based on a comprehensive survey of all economics professors at economics departments or faculties in German universities since 1954, as published in the various editions of the Vademecum deutscher Lehr und Forschungsstätten and a postal survey of all (living) economists that had been identified as heterodox (to be counted as heterodox, one needed to have published at least one book/article based on theories classified as heterodox, see Table 1). The response rate (47.8 percent) and the distribution of respondents across the different types of universities (see Table 2) allow us to take the results as fairly representative. Additionally, we make an in-depth comparison between a selected heterodox economics department (that of the University of Bremen as heterodox stronghold) and an orthodox one (that of the University of Bonn as orthodox stronghold) (Heise at al. 2015).

³⁸ The German system of higher education falls under the authority of the German Bundesländer. Some Bundesländer — namely, those ruled by social-democratic governments at the time — experimented with a new form of higher education institution: the “comprehensive university” that combined academic units of university status with academic units of “Fachhochschul” status (“universities of applied science” that are the German pendant to British polytechnics and U.S. liberal arts colleges).

³⁹ The 1990s should not be interpreted as an “interim high.” Instead, they hint at the quantitative extent of “accidental” appointments. The low number of heterodox appointments in the 1980s is due to the high degree of saturation of the university market after the wave of new universities being founded.

⁴⁰ Furthermore, three of the four heterodox professors at East German universities did not go through the normal appointment procedures, but were außerplanmäßige (extraordinary) Professoren (professorial title that universities may bestow on academics who have suitable qualifications for a professorship, but are not actually employed as such), or arrived at their function when a university of applied science (Fachhochschule) fused with a university (or was transformed into a university). Finally, the three heterodox professors had been appointed by those three faculties or departments where the founding dean was not an economist, but had a different academic background (e.g., business informatics or sociology). In the other faculties or departments, where the founding dean was a West German (mainstream) economist, heterodox economists had virtually no chance of being appointed.

⁴¹ Despite limited information, it would be safe to state that fewer than ten junior researchers received their Habilitation in economics at the economics department of the University of Bremen in the period from 1971 to 2014. In the substantially shorter period from 1984 to 2014, more than three times as many economists (over thirty) completed a Habilitation at the University of Bonn, and most of these went on to obtain a professorship at a German university. This goes for fewer than half of those who did their Habilitation in Bremen (of which merely one could be identified as “heterodox”).

⁴² At the University of Bremen, for example, one of the elements of reform was to reduce the dependency of junior researchers on the chairs or professors. Sometimes professors were not given any postgraduate or postdoctoral research staff (wissenschaftliche Mitarbeiter or Assistenten). It was not until the mid-1980s that a turnaround in staffing policy occurred and the (mainly heterodox) professors were granted a small number of positions for research staff. According to the Statistisches Bundesamt, professors of economics in Germany had an average of 3.71 postgraduate and postdoctoral research staff in 2011 (Stabu 2012, 96). Our survey of heterodox professors in Germany found an average of 2.32 research staff. The discrepancy evident in the resourcing of orthodox and heterodox professors — especially with postdoctoral staff — is likely to have been even greater in the past. While the average level of resourcing is decreasing overall (for the economists at the University of Bonn, the rate was four to five research positions per professor in the 1980s and 1990s, and in the more recent past this has been reduced to two or three due to the large-scale introduction of “junior,” fixed-term and minimally resourced professorships, see Heise et al. 2015), the heterodox professors tend to report a slight improvement. Of course, this development has to be viewed in light of the above-mentioned zero endowment of many heterodox professorships during the founding phase of “reform universities” and the subsequent “normalization.”

⁴³ Some of the named journals have terminated publication since none of the journals made it into the Handelsblatt ranking list, which is becoming an ever more crucial instrument in measuring research output, the allocation of funds, and the recruitment process at German universities.

⁴⁴ The Verein für Socialpolitik is historically the (unofficial) professional organization of academic economists of the German-speaking world.

⁴⁵ Out of ten members of the SVR, which trade unions had the right to nominate since its establishment in 1967, only two came from the ranks of “heterodox economists,” while the other eight nominees tend to be “mainstream,” of “neo-Keynesian” orientation. The fact that even trade unions referred to mainstream rather than heterodox economists may be taken as evidence for the degree of non-acceptance within the academic community. Although trade unions had a nomination right, other (mainstream) members of the SVR had a right to reject nominees, and heterodox nominees were always at risk of rejection. On the other hand, from an economic policy perspective, neo-Keynesians were seen as critical enough in opposing the free market orientation of the majority of the SVR.

Additional information

Notes on contributors

Arne Heise

Arne Heise is a professor of economics at the University of Hamburg (Germany).

Sebastian Thieme

Sebastian Thieme is a Schasching Fellow 2015/2016 at the Catholic Social Academy of Austria, Vienna.